Watts Water Technologies, Inc.
) reported fourth-quarter 2012 adjusted earnings of 61 cents per
share, up 9% from the year-ago quarter EPS of 56 cents and ahead
of the Zacks Consensus Estimate of 58 cents by 5%. On a reported
basis, including special items, earnings in the quarter were 52
cents per share compared with 47 cents in the year-ago
Total revenue edged up 0.5% to $359.2 million, beating the
Zacks Consensus Estimate of $358 million. Negative impacts of
foreign currency translation, mainly due to weakening of the Euro
against the U.S dollar mitigated the benefits from organic growth
Cost and Margins
Cost of sales remained flat at $229 million in the quarter.
Gross profit inched up 1% to $129.7 million. Consequently, gross
margin expanded 30 basis points (bps) to 36.1% in the
Selling, general and administrative expenses increased 5% to
$96 million. Adjusted operating profit remained flat at $37.2
million and adjusted operating margin contracted 10 bps to
North America: Net sales went up 5% to $205.9 million, aided
by acquired sales of $3.6 million and organic sales growth and
favorable foreign currency translation with the strengthening of
the Canadian dollar against the U.S. dollar. Operating profit
decreased 10% to $24.9 million in the quarter.
EMEA: Net sales were $145.3 million, down 6% on a
year-over-year basis due to a negative impact of foreign currency
translation and lower organic sales. The segment, however,
reported an operating profit of $12.7 million, reversing its year
ago operating loss of $2.5 million.
Asia: Net sales increased 31% to $8 million in the quarter,
aided by an increase in organic sales. Operating profit plunged
77% to $2.2 million in the quarter.
Fiscal 2012 Performance
Adjusted earnings per share in fiscal 2012 remained flat at
$2.18 year over year but beat the Zacks Consensus Estimate by a
cent. Including special items, earnings per share was $1.96, up
14%. Revenues for the year increased 1% to $1.445 billion,
missing the Zacks Consensus Estimate of $1.46 billion.
Acquisitions and organic growth offset by a negative impact
foreign exchange translation led to the overall increase. Sales
achieved during the year were the highest since 2008.
Cash and cash equivalents were $271.8 million as of Dec 31,
2012, compared with $250 million as of Dec 31, 2011. Cash flow
from operations for 2012 was $131.9 million versus $127.4 million
Long-term debt excluding current portion amounted to $307.5
million as of Dec 31, 2012, compared with $397 million as of Dec
31, 2011. Net debt-to-capitalization ratio improved to 29% as of
Dec 31, 2012, compared with 30.3% as of Dec 31, 2011.
Watts Water has made strategic investments in both people and
systems and lead-free conversion program in North America. Even
though it has affected near-term results, it will lead to
improved margins in the long term. The company will benefit from
the residential construction recovery that seems imminent in the
U.S. Its focus on growing its business and leveraging the
substantial market expansion opportunities in Asia will add to
its growth profile. However, weak economic condition in Europe is
still a headwind for the company.
Watts Water, through its subsidiaries, is a world leader in
the manufacture of innovative products to control the efficiency,
safety, and quality of water within applications (residential,
commercial, and institutional). Watts Water retains a Zacks Rank
Other stocks to watch out from in the same industry are
Roper Industries Inc.
Badger Meter Inc.
); all carrying a Zacks Rank #2 (Buy).
BADGER METER (BMI): Free Stock Analysis
ROPER INDS INC (ROP): Free Stock Analysis
WATTS WATER TEC (WTS): Free Stock Analysis
WOODWARD INC (WWD): Free Stock Analysis
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